The #1 trick People Born in 1969 will use in 2019 to Retire Early

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It is almost 2019.  Time to start planning for the new year!

I have great news for anyone born in 1969!  The IRS has modified their retirement savings guidelines, but, many will find out too late.

For those individuals who were born in 1969 you will now be able to contribute even more to your individual retirement accounts.

401(k)/ 401(b)/ 457 Contribution Limits

Larger retirement contributions can mean a lower current tax bill as well as more potential income during retirement.  In 2018, an individual under the age of 50 could contribute a maximum of $18,500 to their retirement plan.  In 2019, that number adjusts higher to $19,000 annually.  This applies to 401(k)s, 403(b)s and 457 deferred compensation accounts.

In addition, if you were born in 1969 or before, you are able to contribute an extra $6,000 to your corporate retirement plan.  That means a total of $25,000 can be deferred into your corporate retirement plan.  The number can be even more with employer contributions from either matches or profit sharing components.

IRA and Roth IRA Contribution Limits

If you have an individual retirement account (IRA) or Roth IRA, the annual contribution amount for those under 50 was raised to $6,000.  If you were born in 1969 or before, you are able to contribute up to $7,000 with the $1,000 catch-up contribution.

This truly is great news for all the savers out there and applies whether the contributions are into a Roth or a Traditional retirement account.

SIMPLE IRA Contribution Limit

SIMPLE IRA plans are often put in place by businesses with a smaller number of employees.  They have a lower limit than 401(k) plans but will go up by $500 from $12,500 in 2018 to $13,000 in 2019. If you were born in 1969 or earlier, the catch-up contribution limit will stay the same at $3,000 in both 2018 and 2019. Employer contributions aren’t included in these limits.

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Income Threshold Phaseouts

Income thresholds are also scheduled to increase in 2019.  The number of people eligible to participate in different plans and deduct those contributions should increase in 2019.  I have summarized the increases in the table below.

Set It and Forget It

One of the best ways to implement these adjustments is to modify your deferral amounts at the beginning of 2019 and withhold a higher percentage of your paycheck.  By spreading out the increase over the course of 12 months you are less likely to notice the reduction in take-home pay.  Behaviorally, it is much better to increase your savings over the course of a year then as a lump sum.  I hope this helps as you plan for 2019 and beyond.

Summary of All Changes

2018 2019 Increase
Limit on employee contributions to 401k, 403b, or 457 plan $18,500 $19,000 $500
Limit on age 50+ catchup contributions to 401k, 403b, or 457 plan $6,000 $6,000 None
SIMPLE 401k or SIMPLE IRA contributions limit $12,500 $13,000 $500
SIMPLE 401k or SIMPLE IRA age 50+ catchup contributions limit $3,000 $3,000 None
Highly Compensated Employee definition $120,000 $125,000 $5,000
Maximum annual additions to all defined contribution plans by the same employer $55,000 $56,000 $1,000
Traditional and Roth IRA contribution limit $5,500 $6,000 $500
Traditional and Roth IRA age 50+ catchup contribution limit $1,000 $1,000 None
Deductible IRA income limit, active participant in workplace retirement plan, single $63,000 – $73,000 $64,000 – $74,000 $1,000
Deductible IRA income limit, active participant in workplace retirement plan, married filing jointly $101,000 – $121,000 $103,000 – $123,000 $2,000
Deductible IRA income limit, spouse is active participant in workplace retirement plan $189,000 – $199,000 $193,000 – $203,000 $4,000
Roth IRA income limit, single $120,000 – $135,000 $122,000 – $137,000 $2,000
Roth IRA income limit, married filing jointly $189,000 – $199,000 $193,000 – $203,000 $4,000
FSA Contribution Limit $2,650 $2,700 $50

Source: IRS

 

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